How to Get Out of Debt in 2021Jan 08, 2021
January will bring a mix of emotions for many people this year. On the one hand, there are new possibilities and renewed hope for the year ahead. On the other hand, you may be feeling anxious about the current state of your finances. If so, you’re not the only one. A recent Angus Reid survey found that seven-in-10 Canadians are worried about their personal financial situation in the midst of COVID-19, and they’re concerned about what will happen in the months ahead. If you have lost income, your debt has increased and you continue to struggle, now is the time to make a place to reduce debt. Debt problems can be solved.
In this episode of the BDO Financial Wellness Podcast, host Tera Beljo talks to our BDO Licensed Insolvency Trustees about ways to get out of debt. To learn more about their conversations, read the full transcript below.
Financial Wellness Podcast Transcript
Hello! You are listening to the BDO Financial Wellness Podcast and I’m your host Tera Beljo. And this is our 2020 Year in Review episode. It has been a year like no other hasn’t it? I mean, we’ve learned life lessons and had experiences that most of us would have never anticipated, and in some cases asked for.
So what did we talk about in 2020? Well, no surprise, the conversation in all of our podcasts this year focused on the COVID-19 financial crisis. The pandemic has really affected everyone in one way or another – emotionally, physically or financially, and in some cases, all of the above. But because our mission at BDO Debt Solutions is to help Canadians turn the page on debt, it makes sense that our 2020 podcasts were all about how you can navigate this financial crisis and find the right debt solution that will help you to start a new chapter in 2021.
I had some really great conversations with our BDO Licensed Insolvency Trustees, such as Mike Braga, Ron Gagnon, Ilan Kibel, Jennifer McCracken, and Nancy Snedden. And they shared their expertise, insight, tips and resources on a wide range of personal finance topics. So let’s get started on what we think are the highlights of our 2020 Financial Wellness Podcast series.
9 ways to get rid of debt in 2021
1. Talk about your spending, even if it’s uncomfortable.
Let’s face it, talking about spending habits, budgeting, credit card debt or any kind of debt, as a couple or a family isn’t always easy. A lot of people avoid having money talks altogether. From our August 2020 podcast about how to move forward when CERB and other government benefits end, here’s Nancy Snedden with some great advice and insights on how to talk about money with your loved ones, and why it’s especially important when times are tough.
What communication strategies can families or couples put in place to weather this next phase or this new normal?
I think for families it’s really important, first of all, for spouses to have those discussions about their finances, and many don’t. In many families, even prior to COVID, there was maybe one person who took care of the finances, and maybe spouses didn’t even talk to each other about what their budget looked like or what their monthly bills look like. It’s super important that everyone’s on the same page when it comes to that. You need to have those open communication so that everyone knows what your monthly income is, what your monthly expenses are. And if that means sitting down once a week or once a month and having an open discussion, then that’s what families should be doing.
If you’re uncomfortable starting that discussion, because maybe you’re not on the same page with spending strategies, or you’re not on the same page with what your financial goals should be, then maybe you’d want to sit down with a financial advisor first to kind of lay out the groundwork of how those discussions should be going. And get it out on the table on what your differences might be so that you can come to a plan to overcome them. But the first step is definitely making a plan to have that conversation.
2. Don’t put off getting the debt advice you need.
People are often reluctant, or even afraid, to talk to anyone about their debt. And speaking to a Licensed Insolvency Trustee is understandably scary because getting professional help with your debt isn’t always easy. You might be unsure about your debt relief options or confused about a bankruptcy and how it works. So in this holiday episode of our Financial Wellness Podcast, Nancy Snedden and Ron Gagnon talk about what happens during a first meeting with a Licensed Insolvency Trustee and the relief that their clients feel once they understand what their solutions are.
I know I said that was my final question, but in talking to you both this popped into my head. So I thought I would ask, and I think Nancy, you and I have had this conversation outside of recording the podcast. What would you say to somebody who is struggling? And they know that they’re reaching the point where the stress is too much and that they do need help, but they’re scared to come in and have an appointment with you because they’re scared that they’re not going to have access to credit or access to funds so that they can have a great Christmas or a great holiday season with their family? What advice would you give to somebody in that situation?
I think the greatest gift that they can give themselves Tera, is actually sitting down with someone and finding out what their options are. I hear time and time again from my clients and Ron, I’m sure you would agree, they come in, they have that initial meeting, just talking about their situation and knowing that there are options available, whether it is a bankruptcy or a consumer proposal, maybe it’s some help with budgeting. Maybe it’s we think that they may have the ability to do some refinance. There’s all kinds of options that we go through with them but just knowing that those options are available, you can physically see sometimes the stress being lifted. You can see the weight being lifted off their shoulders just from that conversation. So don’t be afraid, there’s no obligation to sit down and talk to someone. It’s just getting the advice, so you know what the options are, whether that’s prior to the holidays or once the holidays have passed, at least you know what your options are and you can make a plan.
I totally agree with that. I think that you see that relief when the people know that there is a solution or something’s out there, or even that people understand them and feel for their situation. I think that helps a lot, it relieves a lot of pressure. I like to say sometimes before not wanting to do something, “You’re being scared from something that you don’t know, you’re scared of the unknown. Find out what you’re scared about in the worst case scenario. There’s nothing to be scared of, but you may think so. So come in, have a talk and likely you’re going to feel a lot better.”
3. Solve your debt problems to increase your ability to afford what you need.
In October we released our annual BDO Affordability Index and the most startling results were about the effects of COVID-19 on Canadians. About four–in–10 people in Canada are worse off financially because of the pandemic, and these Canadians are much more likely to have overwhelming debt and difficulty affording basic things like groceries and utilities. But on the other hand, people who haven’t been financially affected by the pandemic have been able to pay down debt and increase their savings. In this next clip, Mike Braga talks about how debt relief can help make life more affordable.
So for those who want or need to save more, what is the importance of debt reduction or debt relief, even when debt is overwhelming to some?
That’s the importance. Many people right now have this perception that life isn’t affordable because they’re carrying a tremendous amount of debt. Pre-pandemic, we were saying that the average Canadian is carrying about $30,000 of unsecured debt. Imagine now that we’re going into this situation where income levels have reduced, hours are reduced at work, and you’re struggling to get by. If you’re trying to make payments on all of those debts, of course things are unaffordable. And so that’s where debt reduction or debt relief or meeting with a Licensed Insolvency Trustee to discuss options becomes extremely important and vital for long-term sustainability.
And perhaps right now is the best time to start looking at something of that nature, because it’ll actually relieve a lot of the pressure and stress that you’re feeling right now. The pandemic is creating not only a financial crisis and a health crisis, but a mental health crisis as well. And if you’re burdened by the debt and worrying that those bills are coming in every month, it (debt) is just going to add to your stress. So knowing that there are options available to you, knowing that there are various strategies that you can employ to deal with that debt apart from just avoiding it and burying your head in the sand is extremely important and can alleviate some of that stress for people.
4. Know that you’re not the only one feeling emotionally stressed.
In the November episode of the podcast, it was all about that tongue twister word, she-cession. If you haven’t heard of the she-cession, it’s actually a word created by economists to describe the disproportionate effect that the pandemic recession has had on women. We had a fascinating conversation with Jennifer McCracken and Nancy Snedden about the emotional and financial stress that women (in this case, women with children at home), have been experiencing since the onset of COVID-19.
So let’s talk more about moms with younger children and the incredible stress of trying to do it all during this pandemic. I mean, I know I’m one of them. At one point, especially during the lock down here in Ontario, my husband had to call in my parents because I felt like I was having … I was losing my mind, it felt like. He’s like, “We need help because she’s losing it.” Because I was trying to work, homeschool, do the regular things, and having children underfoot all day. I often joke that when I signed up to be a parent, I did not sign up for this. At four I was supposed to send him off to school for seven hours a day and then he’d come back to me all smart and full of knowledge. I wasn’t supposed to be the one to be putting…I didn’t go to school to be a teacher. So, Jennifer, you have children as well, tell me a little bit about what you think about what’s going on.
Well, I think it’s probably fair to say that a lot of women that are also moms and are dealing with the stress of just living during this pandemic are also reporting higher levels of depression, anxiety, and I think it really does relate to the pressures and the stress that they have within the household. We know that gender roles still exist in Canada, so we know that women…
…for instance are doing more of the laundry, more of the daily meal prep, and men historically pick up those tasks that are not necessarily daily chores like the repairs, like the outdoor work. And so generally on a daily basis, women are really kind of feeling that burden of having to manage it all. And then it’s the other kind of intangible stuff like the gift giving, the buying of presents, the organizing holidays, the maintaining schedules, and the pandemic has really exacerbated those gender roles. So women are having to manage, “is the daycare center open?” They’re homeschooling their children. All the while, also maintaining their…trying to maintain their careers. And the impact obviously - we haven’t talked a lot about debt - but a lot of Canadian households are also carrying debt. So we have just an enormous amount of stress and pressure on Canadians, and particular women are, I think, feeling the crunch more.
The other thing to think about is the impact…Nancy was talking about the impact we’ve had on the economy and think about the type of work that women typically do. So back in 2015 Stats Canada found that women tended to pick up work in professions which were the five Cs. So it’s catering, cashier, caring, cleaning, clerical. And those are high risk occupations, and for some of them…
…the return to work, as Nancy was highlighting, has actually not been the same. So they’re dealing with reduced income, and there’s all of these dynamics happening. And it’s not to say that the pandemic and the economic impacts are not also affecting men, it’s just when women already had a disproportionate amount of pressure on their plate, what do we think happened after the pandemic set in and we all had to adjust our lives? And so, certainly that’s what I’m seeing in my practice, and that’s what I’m reading about as well, just online and social media, is the toll that this is all taking on Canadian women.
5. If you’ve been affected by the she-cession, ask for debt help.
For women who are spending more hours parenting or caring for their elderly loved ones, for women who are sole earners and for women who have lost income, debt has become a real concern since the onset of the pandemic. Finding the right debt solution can not only provide financial relief, but also emotional relief. In this next clip, Nancy Snedden and Jennifer McCracken talk about the women who are coming to them for debt help.
Now I know I just asked you each to talk about what you’re seeing in your practice, but I’d like to talk about your parts of Canada, because this is unique, because we have you, Nancy, who is in Newfoundland, and then we have you, Jennifer, who is out in Vancouver. So those are two separate parts of the country. So are you seeing signs of the she-cession where you live, and has there been an increase in women coming to see you for debt advice? Jennifer, let’s start with you.
I’m seeing certainly an increase of single parent households. So in my practice it would absolutely…I mean, I don’t have the statistics but I can just say anecdotally it is statistically much more common for me to have a single parent household that’s run by a woman, that is not receiving any financial support from their ex-partner, they’re really only getting the Canada (Child) Benefit as another supplemental income amount to support the children and their household expenses. I’m seeing this much more. And I sympathize greatly with these clients that the pandemic, it is so challenging for them because they are running their household, they are the sole earner, they have no other financial support, and then they have their children that they’re also looking after and having to maintain all of the changes we’ve seen in this country. So I am seeing more women come to me. I think what has happened is the pandemic has sort of given that push to resolve the debt situation, because that’s just one more thing that they don’t have the head space to manage anymore. So we (Licensed Insolvency Trustees) take that pressure off and find a solution for them so that they can put their energy into all these other things.
The other aspect I’m seeing is that women with elder care, and they tend to be the ones…I actually had a client recently that literally had to quit her job to look after her mother and she is being paid as part of the household planning. But literally there was nobody else willing to step up and do this and I’m seeing that aspect of it with COVID-19, the limited movements. A lot of my clients are reporting that they’re seeing an impact, that they’re having to run around and support the elders in their family in addition to, of course, observing all the other things in their own immediate household.
What about you, Nancy?
Yeah, I would agree with the things that Jennifer is seeing. I think I’m seeing more women making the call, so not necessarily single parents, although we do have plenty of them, but we’re seeing more calls coming in from women for initial appointments, to see what solutions may be available. And I think that does go a little bit to what we were saying before, as well, where women are home, they’re feeling the stress, they’re feeling the anxiety. They maybe have some more time because they are home with the kids to do some more research to see what solutions may be available, and they’re saying, “Okay, I need to reach out and get some help. I need to get some support.” The financial stress is just a little bit too much right now, especially if they’re on reduced income because they’re not able to work from home, which we’re seeing a lot of that as well.
6. Try these options if you can’t keep up with your rent payments.
Our What Happens When episode was all about navigating the uncertain financial situations brought on by the pandemic. Is debt consolidation an option when you can’t make your student loan payments? What are your rights when a collection agency calls? And should you consider a consumer proposal or bankruptcy if you can no longer make your vehicle loan payments? In this next clip, Nancy Snedden shares steps you can take when you can’t keep up with your monthly rent payments.
Those are some really great options. So now let’s talk about renters. This is a large demographic, almost four and a half million renter households are in Canada. We’ve heard a lot over the last few months about the financial challenges renters are facing across the country, especially those who are having trouble finding work or who have lost an income. With rent deferral opportunities disappearing, what should someone do when they have reached the point where they can’t make their monthly rent payment?
So I guess there’s a couple of options depending on what your current living situation might be, and certainly these are not going to work for everyone. But depending on where you’re living, you may be able to look at the possibility of a roommate to help cover your monthly costs.
But looking at renters, 40 per cent of renter households spend over 30 per cent of their income on rent, which is a high percentage. And when your income is reduced, of course, it’s going to be an even higher percentage of what your household income is. The median household income for renters is just over $41,000. If that’s a family income and you’re living in a high-cost city like Toronto, for example, that is going to make things much less affordable.
So, you’re going to want to look at okay, if roommates aren’t an option, should you be looking at another location that is a lower rent option. Or maybe you really want to stay in your neighborhood and there aren’t a lot of other lower cost options. I think you want to reach out to your landlord and see what, if any, deferrals they can continue to make for you, or a reduction and a catch–up period when you know, you’re going to be back to work, for example. Communication is always key when you’re in these circumstances. You don’t know unless you ask. And I think that’s what’s going to be most important. You’re going to want to make sure you understand the laws in your province. They’re different in every single province. There are landlord-tenancy regulations in every province, so you’re going to want to make sure you understand what your options are in dealing with your landlord on these things as well.
7. Talk to a Licensed Insolvency Trustee about student loan debt forgiveness.
When you’re having trouble repaying your student loan debt, the available options for debt forgiveness can be confusing. Can you include federal or provincial student loans in a consumer proposal or bankruptcy? What information do you need to communicate to your Licensed Insolvency Trustee? Ilan Kibel talks about what happens during a consumer proposal, the process of filing for bankruptcy and why it’s important to talk to a Licensed Insolvency Trustee about your debt relief options for student loan debt forgiveness.
Now, what about people who say, “I can’t afford to file for bankruptcy, or I can’t afford a consumer proposal. I can’t afford to pay you Ilan.”
So if there is the true thing that they cannot afford to pay, there are bankruptcy assistance programs that are offered through the government we put people on. We generally work with people on a case-by-case basis based on the circumstances. But I think when we really sit down and go through the information with individuals and they start realizing that they were servicing five, six hundred dollars a month in debt, and they were actually doing it, but it was still paycheque to paycheque. When you go down through the budget with them and say, “We’ve eliminated that $600 a month payment, your payment may be two, $300.” They sit back and say, “Oh, okay, that’s a completely different perspective.” And there’s always options. I’ve never ever had anybody sit in my office and say, “Nothing we can do for you.” So there are always options.
And we’re here, that’s the purpose of what we licensed to do is review all these options and take the people in the direction that makes sense for them. So that’s really in a nutshell, the quick comparison on the bankruptcy/proposal, we did speak a lot about early in the podcast that student loans came up. That’s one of the debts that people who read out there, “Well, if you’ve got student loan debt, it never goes away. It won’t go away. And therefore I’m not going to tell the trustee or the Licensed Insolvency Trustee about my student loan debt.” People need to be aware that every debt you have gets included when we do a bankruptcy or a proposal.
It’s just whether it survives and lives on past the proposal or bankruptcy is the big question. There are certain debts that will survive and student loans is one of them, depending on when you finished studying. Date of last completion of study is very, very important. I am currently working with a client right now who indicated that he had student loan debt. He finished studying in 2012, and he filed a proposal with me in 2019, you do the math, that’s seven years. Said to him, “Are you sure you better check this out?” He has a number to call student loans. “Find out the last date they have a record that you studied.”
He did that, but I don’t know if you really got the dates right so he filed his proposal and we get the proof of claim from student loans and it says, “We are filing a proof of claim. However, we retain the right for this debt to survive.”
So, I called the individual. I said, “This is what we have we’ve received from them.” He says, “No. No. I finished in 2012.” We went backwards and forward. We found out he finished in November of 2012. He filed in June of 2019. So, he was five months off their timeframe. So now he’s going through, “What do I do?” Well, he can file a bankruptcy, which he doesn’t want to do. He can complete this proposal and file another proposal just to get rid of student loan debt. So, there are options after the fact but this is very key, dates, times in what we do are very, very critically important.
That’s why you should be speaking to a Licensed Insolvency Trustee who know these things who can guide you and help you. There are other debt advisory places out there that may not know this that are not legally qualified to know these things. So, very important, don’t be afraid to have those free initial consultations, open book and get everything… You rather know what could be coming down the road, then get hit by like this unfortunate individual that I’m trying to navigate. And I’ve somewhat got over that with him. He understands it was partly a misunderstanding, a miscommunication from him getting the information. But it’s a key thing and it could force him to have to do a second consumer proposal in five years’ time.
8. Manage your credit cards carefully to maintain a good credit score.
When you’re shopping for the holidays, those pay–as–you–go sales and retail credit cards can seem like a good deal, but that’s not actually the case. These tips and insights about credit card spending and credit scores from Ron Gagnon and Nancy Snedden will help you avoid debt and maintain a positive credit score all year long.
Another thing that I’ve noticed that happens particularly around the holiday season is you go into Walmart or Canadian Tire, any store, and they’re always offering you a fantastic savings deal to sign up for their credit card. Any advice for how to handle that?
Well, I think it’s important for people to look at, what credit do they currently have available and are they using that responsibly? And is this additional credit going to be too much of a temptation that… because for some people they see their credit card similar to their bank card. So if there’s available credit there and there’s something that they want, then because the credit is there to get it, they’re going to go ahead and purchase it. You need to be really disciplined before you’re signing up for new credit.
It’s always good to have some credit available because you may have that emergency that you don’t have the dollars for or you’re not going to have a credit score at all unless you have some source of credit, but just make sure you’re being responsible about it and make sure it’s something that you’ll be able to utilize in a positive way not something that’s going to negatively impact you, because another consideration with your credit score is that if you have too much credit or too much highly leveraged credit, that’s actually going to have a negative impact versus a positive impact.
And to add, Nancy, I agree with you that to have some form of credit card available is good because it does help with your credit score and it is useful, but the store credit card is not one of them because the interest rates are really high on those cards as we all know and I think they should be avoided at all costs.
And they’re also bringing you in with that, “no money down”, “no payments until next year.” So, what happens? Because who knows what’s going to happen in 2021 with the pandemic? What happens when you miss a payment?
Your credit is impacted automatically. Missing payments is something that’s going to hurt you, and in some instances, what it does is it brings the whole interest that is paid. Even though you have no money down, if you miss a payment, they can factor in all of the interest for the whole loan. So it’s a very dangerous thing to use if you’re not totally certain that you’re going to be able to make every single payment or not miss a single one.
So, now is also a time where people may look to payday loans to make it through Christmas. Do you have any advice around that, Nancy?
I would say my advice around payday loans, Tera, is always avoid them at all costs. These payday loans, once you get into a cycle of them, it’s really hard to get out. And I see people who get trapped in a cycle of not being able to pay back the money because the interest on them can be as high as 60 per cent.
And a lot of people don’t realize that. And although they’re going to take the money out of your paycheque when you get paid, that’s then going to leave you that much shorter for that payday. So if you’re someone who lives paycheque to paycheque or is very close to living paycheque to paycheque, having to pay back a payday loan, then get you in the cycle that before next payday, you’re likely going to need another payday loan, and so the cycle continues. So I would say avoid that at all, all costs.
And I agree with Nancy. It’s such a bad idea that some provinces…I know for Quebec in particular, it’s actually illegal to have a payday loan. You cannot get into that because it’s not something that you should resort to ever.
9. Don’t let shame and misconceptions stop you from getting debt help.
Trying to keep up with overwhelming debt can be all consuming and not only financially stressful, but emotionally stressful too. And because there are so many misconceptions and stigma surrounding formal debt solutions like bankruptcy and consumer proposals, people often feel ashamed of their financial situation. But as we talked about in this podcast, debt problems can happen to anyone. In this next clip, Jennifer McCracken talks about the positive outcomes of overcoming your feelings of shame and reaching out for help.
I mean, we talk about this a lot within our marketing team, when we’re talking about what we’re going to do, do you think shame plays a big role in it as well? Like you don’t want to talk about it? You don’t want to reach out for help?
Oh, a hundred percent. You know, one thing I find a lot in my meetings, is that an individual …we’ll sit down and we’ll get a bit of their background. As soon as they start talking about their financial situation, they’ll start welling up and crying and they’ll go, “Oh my goodness, I never normally cry,” or “I’m so embarrassed that I’m crying.” I’ll always say to them, “Let me guess. you probably have not talked about your debt to anybody.”
So, the moment they start talking about it, the emotions come in. So, they’re carrying so much baggage around with it. They’re thinking about it day in and day out, before they sleep, in the shower. When they start talking about it, all those emotions that come with it come out. They’ve been keeping it all bottled up inside. So yes, the reason they keep it bottled up inside is they feel shameful for it.
That’s the other thing that I like to encourage individuals, whether I’m doing a podcast, or speaking, or talking with my clients, or a face-to-face. Unfortunately, debt is a part of our existence for a lot of Canadians. So, really it’s around finding a solution, it’s around saying, “Look, I want to be debt-free. I want to change my life.”
So, actually having debt, in a weird way, can become a transformative part of people’s lives. Because when they get that under control and get that tackled, other parts of their life seem to come into play. So, it is generally a warning sign there are other things going on in people’s lives, but also, it can be the motivating thing to make change, a really significant change, in people’s lives.
I’d sincerely like to thank all of the BDO Licensed Insolvency Trustees that participated in our 2020 Financial Wellness Podcast. Thank you to Mike Braga, Ron Gagnon, Ilan Kibel, Jennifer McCracken and Nancy Snedden. I’d also like to thank you for tuning in and wish you a happy and healthy New Year. You can find full versions of all the podcasts we’ve talked about in this episode, along with videos, debt management resources, online tools or expert advice on our website, DebtSolutions.BDO.ca. And remember, debt isn’t the end of your story. Your next chapter is waiting.